Kodak shopping patents around as losses mount and ITC ruling nears

Even as Kodak anxiously awaits a ruling from the International Trade Commission that could bring in more than a billion dollars in revenue from Apple and RIM, the photography company is counting on its patent portfolio to reverse a string of losses that have sent shares of its stock tumbling.

Eastman Kodak posted a loss of $179 million, or 67 cents per share, in the second quarter, down from a loss of $167 million in the year ago quarter, Reutersreports. Though the results were better than Wall Street had expected, investors continued to pressure the company on its strategy for turning itself around. Shares of Kodak are down more than 56 percent since the beginning of the year.

Kodak has said it hopes to transform into a "digital profitable and sustainable company by 2012." During an earnings call, Chief Executive Antonio Perez highlighted Kodak's efforts to capitalize on its patent portfolio as part of its company strategy.

"Given the heightened demand in the marketplace for premium intellectual property assets, we believe that the timing is right and that we have a great opportunity for these very valuable assets," he said.

The company continues to forecast $250 million to $350 million in revenue this year from intellectual property licensing, though. Kodak hopes to profit even further from its portfolio, as technology companies have displayed a growing willingness to spend billions on intellectual property that can provide competitive advantages and defensive strength.

Kodak is looking into "strategic alternatives" for its approximately 1,100 digital imaging patents, or roughly 10 percent of its total patent portfolio and may forgo annual licensing revenue in order to sell the patents for "a large amount of money" upfront.

"This action does not change our intellectual property litigation strategy at the International Trade Commission or in the district courts, and we remain confident that the patents being litigated will be found to be valid and infringed," Perez said.

Over the past two years, Kodak leveraged the ITC to reach settlements with Korean electronics makers Samsung and LG that brought in as much as $950 million for the beleaguered company. Emboldened by the victory, the 130-year-old Rochester, N.Y.-based company then set its sights on smartphone makers Apple and Research in Motion.

In January of last year, Kodak sued Apple, asserting the same patent it had used against Samsung and LG. Earlier this year, Perez said that a victory over the two companies could bring in more than $1 billion in royalty revenue.

However, Kodak has faced several setbacks in its case against Apple with the ITC. In January, a judge with the federal agency agreed with Apple and RIM that the patent was invalid because it was "an obvious variation of an earlier invention." The commission upheld parts of that decision last month, while also sending some claims back to an administrative law judge for a final decision in August.

Perez remains confident that the judge will reverse the original ruling and side with Kodak. "When we asked, and we did ask, litigation experts, our own team of course, our external legal firm of course, individuals of high caliber that used to work in the ITC, we did all of that research, and every one of those, without exceptions, without exception, understands that the opinion that was given by the Commission in the new construction is very, very favorable to the Kodak case," he said Tuesday.

The executive also indicated that the company has attracted significant interest as it has shopped its patents around. "My IP team didn't want me to tell you, but we got a lot of attention," Perez said.

Industry watchers have suggested that interest in patents is nearing unprecedented levels. After rumors emerged that Apple and Google were interested in purchasing InterDigital for its portfolio of 8,800 patents, caused the Pennsylvania-based company to shoot up in value by 50 percent.

The most high-profile patent purchase in recent weeks remains the Nortel patent auction, which surprised analysts when bidding maxed out at $4.5 billion. The auction reportedly say intensely fierce bidding, with Apple eventually teaming up with a consortium, which included Microsoft, Research in Motion and Sony, to beat out Google and Intel.

Google general counsel Kent Walker called the deal the "biggest patents sale in the history of the world. The Mountain View, Calif., Android maker was disappointed by the loss, but has said it is looking into "other opportunities" to build out its patent portfolio, which is dwarfed by some of its older, larger competitors.

Walker said on Monday that the current patent situation is "an arduous and expensive way" of reaching "mutual assured destruction," while admitting that Google no choice but to build up its patent portfolio.